Ch14 Depreciation Review

What is depreciation?

• A method to increase an asset’s value over time

• The allocation of the cost of an asset over its useful life

• The process of selling assets at a profit

• The interest earned on assets

Why do businesses depreciate assets?

• To increase net income

• To allocate the cost of an asset over time

• To adjust for inflation

• To lower the market value of the asset

Which of the following is NOT a method of depreciation?

• Straight-line method

• Declining-balance method

• Units-of-production method

• Compound interest method

What is the formula for calculating straight-line depreciation?

• (Cost - Residual Value) ÷ Useful Life

• Cost × Depreciation Rate

• Book Value × Depreciation Rate

• Total Units Produced ÷ Depreciation per Unit

How do you calculate depreciation per unit using the units-of-production method?

• Total Estimated Units ÷ (Cost - Residual Value)

• (Cost - Residual Value) ÷ Total Estimated Units

• Book Value × Depreciation Rate

• Residual Value × Units Produced

In the double declining-balance method, what is the depreciation rate if the straight-line rate is 10%?

• 5%

• 10%

• 20%

• 40%

A company purchases a machine for $10,000. The estimated residual value is $2,000, and the useful life is 4 years. What is the annual straight-line depreciation expense?

• $1,500

• $2,000

• $2,500

• $4,000

A machine costs $5,000, has an estimated residual value of $500, and a total estimated life of 900 units. If it produces 150 units in the first year, what is the depreciation expense?

• $750

• $833

• $875

• $900

A truck costs $40,000, has a residual value of $5,000, and a useful life of 4 years. Using the double declining-balance method, what is the first-year depreciation expense?

• $10,000

• $20,000

• $16,000

• $8,000

Using the previous truck example of $40,000 cost with 4-year life, what is the second-year DDB depreciation expense?

• $12,000

• $15,000

• $8,000

• $10,000